Activision shares soar on Vivendi deal

Activision Blizzard Inc.'s shares soared to a multiyear high Friday after French conglomerate Vivendi said that it would sell its majority stake in the company and the game maker raised its full-year outlook.

THE SPARK: Vivendi SA said that is selling its stake for about $8.2 billion in a move to try to strengthen its balance sheet.

Vivendi will sell 429 million of its shares to Activision itself. Another 172 million shares will be sold to a consortium of key investors, including Activision's CEO Bobby Kotick and co-chairman Brian Kelly.

Activision said in a conference call with investors Friday that this is a "tremendous" opportunity for the company and its shareholders. The move will reduce the company's outstanding share count, boosting the value of remaining shares.

Activision also said that it expects to beat expectations for its second quarter. It anticipates earnings of 28 cents per share, or 8 cents per share on an adjusted basis, with revenue of $1.05 billion, or $608 million on an adjusted basis.

The adjusted figures exclude special items and account for the effects of deferring revenue and the related cost of sales for games with online components. Like other video game companies, Activision spreads these out over time, while the game is played, rather than all at once.

Analysts polled by FactSet had anticipated adjusted earnings of 6 cents per share on revenue of $602.4 million.

Activision also boosted its full-year forecast based on its second-quarter performance. The company now expects to earn 77 cents per share for the year on revenue of $4.31 billion. That compares with its prior forecast of earnings of 73 cents per share on revenue of $4.22 billion. It reconfirmed its adjusted earnings expectation of 82 cents per share on revenue of $4.25 billion.

Analysts were anticipating earnings 86 cents per share on an adjusted basis on revenue of $4.29 billion.

The company is expected to report earnings Aug. 1.

THE BIG PICTURE: Vivendi has held a majority stake in Activision since 2008. The company, based in Santa Monica, Calif., makes games such as "World of Warcraft."

The sale, at $13.60 per share, will reduce Vivendi's holdings from 61.1 percent of Activision's common shares to 12 percent. The French company will continue to hold 83 million Activision shares after the sale, which is expected to close in September.

Vivendi will use the cash to strength its balance sheet and maintain its credit rating. The conglomerate has been trying to restructure and sell off some of its business to help better position the company.

THE ANALYSIS: Jefferies analyst Brian Pitz said in a research note Friday that at first blush, he likes the deal. The offer is at a roughly 10 percent discount to current share prices and offers tax advantages, as well as the opportunity to boost its earnings per share value. The analyst also noted that the new guidance does not yet account for any benefit from the reduced number of shares outstanding related to the deal.

SHARE ACTION: Shares of Activision jumped $2.08, a nearly 14 percent increase, to $17.26 in midday trading. The company's stock hit $17.76 earlier in the day, its highest level since August 2008.